About this calculator
The Sales Tax Calculator calculates the amount of tax you are charged and the final price.
What is Sales tax?
Sales tax is a type of consumption tax which is levied on the sale of products and services, commonly at the point of sale. Sales tax is not imposed at every production and distribution level like VAT but usually imposed once when a final product is purchased by the consumer. The seller charges the buyer with the tax and pays it to the government. The rate of sales tax differs depending on the country or the state or the locality, and the local laws may give exemptions on certain items such as essential or necessities. It is amongst the most widespread types of indirect taxes levied to raise revenue to the government services and infrastructure.
Sales tax vs. value-added tax (VAT)
Sales tax is a one-stage consumption tax that is imposed on the final point of sale: The retailer will impose a percentage of the purchase price and send the same to the government. It is easy to comprehend and manage since tax is paid once only when the final consumer makes the payment. VAT is a multi-stage tax, which is levied along the chain of supply: every business levies VAT taxes on the sales but is able to recoup (credit) the amount of VAT levied on purchases, so only the added value at every stage is paid to the tax collector. This input-tax credit system avoids tax-on-taxoline (cascading), and renders VAT more neutral to the businesses. Practically, the differences are important of enforcement, prices, and administration. VAT is less easy to avoid and does not have cumulative taxation that is difficult to detect, however, it is more complex to administer since businesses have to monitor both inbound and outbound VAT, and submit returns on a periodical basis. It is simpler to collect, and easier by small retailers, since it is only levied at retail, but due to the evasion problems linked with it, and because it is more prone to the cascading problems, when there are many business turnover taxes, sales tax can promote in the informal markets. VAT/GST has become the primary consumption tax in many countries (and most of Europe), and sales taxes systems are used in other countries (especially in the U.S. states).
History of the sales tax
The concept of taxation that is applied on transactions and purchases is nearly as old as organized government. The ancient state charged tariffs on trans-border goods and small transactional tariffs on markets and ports; tolls, market fees and excise duties of specific products (salt, alcohol, grain) were the common sources of revenue in medieval towns. These were early taxes, limited and restricted to particular goods or localities, not the high retail consumption taxes we have in mind today.
With the growth in commerce during the early modern and industrial periods, governments tried numerous types of indirect taxation. In Europe and colonial governments, excise duties on distilled spirits, salt and tobacco came to be significant sources of state revenue. The development of industrial production and elaborate supply chains in the 19th century posed administrative and fiscal challenges to taxes that taxed every production step - and policymakers started seeking more neutral means of taxing consumption instead of production.
The retail sales tax is a general consumption tax mainly an invention of the 20th century in the United States. The great depression plunged a number of states in the U.S. into a frenzy to get new revenue; since the 1930s a number of states started to implement general retail sales taxes to widen their tax bases as fast as possible. These were the state-level sales taxes, which were imposed at the point of the final sale to the consumer, and, thus, they diffused quickly, as they were rather easy to regulate and noticeable by taxpayers. As opposed to income taxes, sales taxes are imposed by people who sell the product and they submit them to the government thus they were appealing to those states who had less administrative ability at the time.
Meanwhile, elsewhere in the world, and especially in Europe, a different model of consumption tax was created to evade the so-called tax-on-tax problem that had arisen when most turnover taxes were linked together in supply chains. Modern value added tax (VAT) was first introduced in the 1950s; France instituted VAT in the mid-1950s, and the concept easily caught on as VAT gave each firm the benefit to refund taxes it paid on inputs but taxed only the value it added. That input-credit system propelled VAT to be neutral to business, and immune to cascading taxation, thus by the second half of the 20th century most European countries and many others had embraced VAT as their main consumption tax.
The sales taxes and VATs both reached their maturity in the second half of the 20th century. In the United States, sales taxes were still used at the state and local level with numerous exemptions and special provisions, and VAT was the new consumption tax in Europe, much of Latin America, Africa and Asia. Regulations were invested in exemptions, lower rates on necessities, small business thresholds, and reporting mechanisms to cope with the complexity. The debate on tax policy shifted to focus on fairness (what goods should be exempt or reduced), regressivity (what consumption tax does to the low-income household), and compliance costs to businesses.
New problems of the digital age emerged. Transactions were transferred to the Internet, international digital services increased manifold, and it became difficult to define the place of supply. Jurisdictions hastened to revise regulations to allow online sellers to pay tax in a proper manner; at the international level, the EU and most nations revised digital VAT regulations, and in the United States courts and legislatures considered whether states could require remote sellers to collect sales tax. In 2018, a historic decision by the U.S. Supreme Court eliminated one of the previous obstacles and permitted states to gain increased authority to demand out-of-state (including online) sellers collect and remit sales tax a significant step in harmonizing the collection of tax with the current state of e-commerce.
The world today has two flavors of consumption taxation in the form of sales tax and VAT systems. In the U.S. and many other countries, sales tax is still the visible conspicuous tax at the cashier in the retail store, and it is usually state and local specific. In most other countries VAT is a multi-stage, input-credit system and it is more often than not, embedded in the posted price. Both systems are still undergoing change: governments are tampering with rates, exemptions, thresholds and compliance technology; tax authorities are cooperating across borders to address the issue of evasion; and policymakers are grappling with the distributional implications of consumption taxes and how they can be more practical in the real world.